How Can We Enable More Taxpayers to Benefit from Budget Bill’s Tax Cuts?
Advocates for the Elderly and Wisconsin Families Suggest Two Options
New data released today by the Legislative Fiscal Bureau (LFB) indicate that about 27% of the 2.8 million people who file income tax returns with the Wisconsin Department of Revenue wouldn’t benefit from the $750 million of income tax cuts proposed last week by Rep. Kooyenga. That’s not a shock, but it’s a contrary to Rep. Kooyenga’s assertion last week that his plan would “help out everyone in Wisconsin.”
The new LFB figures reveal the following:
- For tax year 2015, when the plan is fully phased in, the average tax change would be a savings of $290 per year.
- People making under $30,000, who represent 44% of tax filers, would get less than 2% of the proposed tax cut.
- People making over $100,000 per year, who comprise 15.6% of Wisconsin’s tax filers, would get 63.5% of the benefit of the Kooyenga plan.
The Kooyenga plan is tilted in favor of the wealthiest Wisconsinites to a much greater extent than the Governor’s proposal. Although any income tax plan that just cuts the tax rates will disproportionately benefit the wealthy, there is no reason why the tax cut can’t de designed in a way that helps far more people. Our blog post yesterday explained why it makes sense to broaden the tax plan and strive to make it live up to the Governor’s recent claim that: “Including a tax cut in the 2013-15 budget will help those hit hardest by economic difficulties get back on their feet.”
Two easy options for enabling far more taxpayers to benefit from tax cuts in the budget bill are briefly described in a letter sent to Finance Committee members Friday by advocates for the elderly and Wisconsin families. The letter from WCCF, AARP-Wisconsin, the Coalition of Wisconsin Aging Groups, and the Wisconsin Alliance for Retired Americans asks legislators to:
Boost the Homestead tax credit – The letter recommends increasing the credit or at least adjusting it each year for inflation. The Homestead credit provides targeted property tax relief to about 250,000 low-income Wisconsinites, but it isn’t adjusted for inflation and over the last 20 years the value of the average credit has fallen by 27%. “Indexing” the Homestead credit for inflation would be a very low cost way of revising the tax cut package so it helps a far wider set of state taxpayers — not in a dramatic way, but by halting the long-term decline in number of people who are eligible and the value the credit. (It appears that legislators will approve the Governor’s recommendation to index a different part of the tax code – the higher education tuition deduction.)
Reverse the cut made in 2011 to the Earned Income Tax Credit (EITC) – The letter only briefly touches on this issue, but please allow me to fill in a few details. The current version of the budget bill reduces state General Purpose revenue (GPR) for the EITC by an average of about $25 million per year. If legislators would merely maintain the GPR funding level appropriated for the current fiscal year (FY 2013), that consistent level of state support, coupled with additional federal TANF funds already approved by the committee, would provide enough funding in the 2013-15 budget to undo almost all of the cut to the EITC in the last biennium.
Of course, there are also a number of other ways to cut taxes without steering most of the tax cut to people making upwards of $100,000 per year. In the past, lawmakers have typically adjusted both tax rates and deductions when cutting income taxes. Raising the personal exemption for each family member and boosting the property tax rent credit are two ways to make the tax cut less lopsided, although those options wouldn’t expand the number of taxpayers who benefit.
If the Governor genuinely wants the tax cut in the budget to “help those hit hardest by economic difficulties get back on their feet,” he will work with legislators to improve the refundable tax credits and make other changes that create a fairer and more balanced tax cut plan.